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Final Award

LIST OF DEFINED TERMS

2000 Tax Assessment Tax Assessment of Yukos Oil by the Russian Federation for the 2000 tax year
2001 Tax Assessment Tax Assessment of Yukos Oil by the Russian Federation for the 2001 tax year
2002 Tax Assessment Tax Assessment of Yukos Oil by the Russian Federation for the 2002 tax year
2003 Tax Assessment Tax Assessment of Yukos Oil by the Russian Federation for the 2003 tax year
2004 Tax Assessment Tax Assessment of Yukos Oil by the Russian Federation for the 2004 tax year
Armenian Branch A branch of offshore Yukos Oil subsidiaries, headed by Yukos CIS Investments, a limited liability company incorporated in Armenia
ARSIWA International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts [2001] 2(2) YB ILC 26
ATAs Advance Tax Agreements
August 2004 Loan The August 2004 loan, made to Yukos Oil by Yukos Capital, in the principal amount of USD 355 million
B Loan A USD 1.6 billion loan agreement between Yukos Oil. and SG
Baikal OOO Baikalfinancegroup, a company incorporated in Tver
Brill Brill Management Ltd, incorporated in the BVI
Brittany Brittany Assets Ltd
Brittany Loan The loan established pursuant to the Brittany Loan Agreement
Brittany Loan Agreement Agreement establishing a loan between Brittany (lender) and Yukos Capital (borrower) dated 20 November 2003
BVI The British Virgin Islands

Claimant / Yukos Capital Yukos Capital Ltd, formerly Yukos Capital S.à r.l., the Claimant
Corporate Reorganisation The changing of the Claimant’s domicile from Luxembourg to the British Virgin Islands, as notified to the Tribunal on 15 January 2018
Counter-Memorial Respondent’s Counter-Memorial on the Merits dated 11 July 2018
Cyprus companies The Cyprus holding companies Dunsley Ltd and Nassaubridge Management Ltd
Cyprus DTA Cyprus-Russia Double-Tax Agreement
December 2003 Loan The December 2003 loan, made to Yukos Oil by Yukos Capital, in the principal amount of RUB 79.3 billion
DKW Dresdner Kleinwort Wasserstein
DKW Valuation Valuation of YNG by Dresdner Kleinwort Wasserstein, dated 6 October 2004
Dunsley Dunsley Ltd, incorporated in Cyprus
ECT / Treaty Energy Charter Treaty, 1994
ECtHR European Court of Human Rights
English Judgment Judgment of 24 June 2005 of the High Court of England and Wales
Fargoil OOO Fargoil, incorporated in Mordovia, Russia
Federal Tax Service The Federal Tax Service of the Russian Federation
FET Fair and equitable treatment
First Appeal Claimant’s appeal dated 28 July 2006 of the decision denying its First Bankruptcy Application
First Bankruptcy Application Claimant’s application of 27 April 2006 for the inclusion of its claims in the Register of Creditors
First Cassation Appeal Claimants cassation appeal dated 27 November 2006 against the suspension of its appeal from the First Bankruptcy Application
FMV Fair market value

Gazprom OAO Gazprom
Gazpromneft / Sibneft OOO Gazpromneft, a subsidiary of Gazprom, formerly Sibneft
Group Menatep Group Menatep Ltd, a limited liability company incorporated in Gibraltar
Giga-dividend A USD 2 billion dividend issued by Yukos Oil, declared on 28 November 2003
Guidelines World Bank Guidelines on the Treatment of Foreign Direct Investment
Hearing The hearing on the merits, held between 1-12 July 2019 in London
Hearing on Jurisdiction The hearing on jurisdiction, held between 31 August and 4 September 2015 in The Hague
Hedgerow Hedgerow Ltd, formerly Rospan
Hedgerow Loan The loan established pursuant to the Hedgerow Loan Agreement
Hedgerow Loan Agreement Agreement establishing a loan between Hedgerow (lender) and Yukos Capital (borrower) dated 18 August 2004
Hulley Final Awards The final awards rendered in Hulley Enterprises Ltd (Cyprus) v Russian Federation, Yukos Universal Ltd (Isle of Man) v Russian Federation, and Veteran Petroleum Ltd (Cyprus) v Russian Federation
Hulley Awards The interim awards on jurisdiction and admissibility and the final awards rendered in Hulley Enterprises Ltd (Cyprus) v Russian Federation, Yukos Universal Ltd (Isle of Man) v Russian Federation, and Veteran Petroleum Ltd (Cyprus) v Russian Federation
Hulley Proceedings The arbitration proceedings in Hulley Enterprises Ltd (Cyprus) v Russian Federation, Yukos Universal Ltd (Isle of Man) v Russian Federation, and Veteran Petroleum Ltd (Cyprus) v Russian Federation
Interim Award Tribunal’s Interim Award on Jurisdiction dated 18 January 2017
JHV James Holding Venture Corp, incorporated in the BVI

Loans The December 2003 Loan and the August 2004 Loan
Low-tax regions / LTRs Jurisdictions within the Russian Federation with lower profit-tax rates
LTR Subsidiaries Subsidiaries of Yukos Oil registered in low-tax regions
Luxembourg DTA Luxembourg-Russia Double-Tax Agreement
Memorial Claimant’s Memorial on the Merits dated 27 October 2017
Miwok Miwok Wealth PIC Ltd, an entity incorporated in the BVI into which Yukos Capital S.à r.l. was merged
Moonstone Moonstone Investments Ltd, incorporated in the BVI
Nassaubridge Nassaubridge Management Ltd, incorporated in Cyprus
Nomos NOMOS Law Office, the firm representing Yukos Capital in the bankruptcy proceeding
Notice of Arbitration Notice of Arbitration dated 15 February 2013
Parties The Claimant and the Respondent
PCA Permanent Court of Arbitration
PCIJ Permanent Court of International Justice
PO N° 1 Procedural Order N° 1 dated 24 April 2014
PO N° 2 Procedural Order N° 2 dated 20 January 2015
PO N° 3 Procedural Order N° 3 dated 13 November 2017
PO N° 4 Procedural Order N° 4 dated 18 May 2018
PO N° 5 Procedural Order N° 5 dated 28 September 2018
PO N° 6 Procedural Order N° 6 dated 1 November 2018
PO N° 7 Procedural Order N° 7 dated 10 December 2018
PO N° 8 Procedural Order N° 8 dated 1 April 2019
PO N° 9 Procedural Order N° 9 dated 30 April 2019
PO N° 10 Procedural Order N° 10 dated 30 April 2019

Production Subsidiaries Yukos Oil’s main oil-production subsidiaries, being Yuganskneftegaz, Samaraneftegaz and Tomskneft
Promneftstroy OOO Promneftstroy
Promneftstroy action Proceedings in the Dutch courts regarding the ability of Yukos Capital to direct its claims pursuant to the Loans against Promneftstroy
PwC PricewaterhouseCoopers
Ratibor OOO Ratibor, incorporated in Mordovia, Russia
Rebgun action Proceedings in the Dutch courts regarding the ownership of Yukos Finance
Register of Creditors The three tiers of claims comprising the register of creditors in Yukos Oil’s bankruptcy proceedings
Rehabilitation Plan Yukos Oil’s financial rehabilitation plan of June 2006
Rejoinder Respondent’s Rejoinder on the Merits dated 14 May 2019
Reply Claimant’s Reply on the Merits dated 8 January 2019
Respondent / Russia / Russian Federation Government of the Russian Federation, the Respondent
RFPF The Russian Federal Property Fund
Rosneft Oil Company Rosneft OJSC
Rospan Rospan Overseas Ltd, now Hedgerow
Russia / Russian Federation / Respondent Government of the Russian Federation, the Respondent
Second Appeal Claimant’s appeal dated 18 December 2006 of the decision denying its Second Bankruptcy Application
Second Bankruptcy Application Claimant’s application dated 6 October 2006 for the inclusion of its claims in the Register of Creditors
Second Cassation Appeal Claimant’s cassation appeal dated 10 April 2007 seeking to reverse the judgments on the Second Bankruptcy Application and the Second Appeal
Set-Aside Application Respondent’s application to Swiss Federal Tribunal to set aside the Interim Award

Sibneft / Gazpromneft OOO Gazpromneft, a subsidiary of Gazprom, formerly Sibneft
SN Samaraneftegaz, one of Yukos Oil’s main oil-production subsidiaries
Société Générale Société Générale SA
Stichting Stichting Administratiekantoor Yukos International, a foundation incorporated in the Netherlands in 2005
Syndicate Loan A USD 1 billion loan agreement between Société Générale and the Western Banks
Tax Assessments The tax assessments of Yukos Oil by the Russian Federation for the 2000-2004 tax years
Terms of Appointment Terms of Appointment between the Parties appointing the Tribunal dated 17 February 2014
The Hague District Court Judgment Judgment of The Hague District Court dated 20 April 2016 in Action Nos C/09/477160 / HA ZA 15-1, C/09/477162 / HA ZA 15-2 and C/09/481619 / HA ZA 15-112, in relation to the Hulley Final Awards and the interim awards on jurisdiction and admissibility in the same cases
TMF TMF Corporate Services SA, the manager of Yukos Capital
TN Tomskneft, one of Yukos Oil’s main oil-production subsidiaries
Treaty / ECT Energy Charter Treaty, 1994
UNCITRAL Rules Arbitration Rules of the United Nations Commission on International Trade Law, 1976
VAT Value-added tax
Western Banks A consortium of European and North American banks that had granted loans to Yukos Oil, led by Société Générale
YNG Yuganskneftegaz, one of Yukos Oil’s main oil-production subsidiaries
Yukos Capital / Claimant Yukos Capital Ltd, formerly Yukos Capital S.à r.l., the Claimant

Yukos CIS Yukos CIS Investments, a company incorporated in Armenia and the head of the Armenian Branch
Yukos Finance Yukos Finance BV, a private limited liability company incorporated in the Netherlands
Yukos Group All companies within the Yukos group of companies
Yukos Hydrocarbons Yukos Hydrocarbons Ltd, a private limited liability company incorporated in the BVI
Yukos International Yukos International UK BV, a private limited liability company incorporated in the Netherlands
Yukos Oil Yukos Oil Company OJSC, a joint stock company incorporated in the Russian Federation in 1993
Yukos Tax Arrangement The corporate structure designed by the Yukos Group for purposes of tax optimisation for the profits of Yukos Oil
ZATOs Closed Administrative Territorial Formations within the Russian Federation

I. INTRODUCTION

A. The Parties and their Representatives

1.
The Claimant in this arbitration is Yukos Capital Ltd (formerly Yukos Capital S.à r.l.) (Yukos Capital, or the Claimant), a private company organised and existing under the laws of the British Virgin Islands (the BVI), with its registered address at Palm Grove House, PO Box 438, Road Town, Tortola, British Virgin Islands. The Claimant is represented in these proceedings by Mr Cyrus Benson, Ms Penny Madden QC, Ms Ceyda Knoebel, Mr Piers Plumptre, Ms Sophy Helgesen, Ms Sasha Kobyasheva and Mr Theo Tyrrell of Gibson, Dunn & Crutcher UK LLP, Telephone House, 2-4 Temple Avenue, London EC4Y OHB, United Kingdom.

B. Background to the dispute

II. PROCEDURAL HISTORY

A. Commencement of the Arbitration

5.
By letter dated 23 May 2008, the Claimant 'notified the Russian Federation, through the Russian Ministry of Justice, of its claims under the ECT, accepted the Russian Federation’s offer to arbitrate and invited the Russian Federation to engage in settlement discussions.’1

B. Constitution of the Tribunal and Preliminary Procedural Matters

C. Jurisdiction and Admissibility Phase

D. Merits Phase

1. Stay of the arbitration pending set-aside proceedings in Switzerland

2. Procedural calendar and written submissions

3. Claimant’s corporate reorganisation

4. Document production

5. Motion to strike

6. Expert reports

7. Security for costs

8. Hearing on the merits

9. Post-Hearing proceedings

III. FACTUAL BACKGROUND

96.
In this section of the Award, the Tribunal briefly summarises the factual background to the present dispute. The Tribunal returns to a more detailed analysis of the facts where necessary in the context of its assessment of the Parties’ contentions on jurisdiction, liability and compensation.

A. The Claimant

B. The Structure of the Yukos Oil Business

C. The Loans

111.
As to the source of the funds:

(i) It is common ground that the December 2003 Loan was funded primarily38 from profits of oil trading activities, in particular that had accumulated in Russian subsidiaries (Ratibor and Fargoil) and passed by way of dividends to their Cyprus parents (Dunsley and Nassaubridge), to their parents in the BVI (JHV and Moonstone), then to Brill and finally to Brittany.

(ii) At that point the Parties differ: the Claimant’s evidence is that the loans were also sourced from fixed income debt investments and offshore investments;39 the Respondent submits that the entirety of the loans were derived from Fargoil and Ratibor via Brill (described with Brittany as a 'cash accumulation center’),40 and notes that there was no documentary support for the Claimant’s testimony.41

D. The Yukos Oil Tax Assessments

E. The Enforcement against Yukos Oil

1. Enforcement of Tax Assessments

2. The Yuganskneftegaz auction

F. The Bankruptcy Proceedings

G. The Exclusion of the Claimant’s Claims from the Bankruptcy of Yukos Oil

H. The Liquidation of Yukos Oil

IV. JURISDICTIONAL OBJECTIONS

A. Introduction

1. Tribunal’s consideration in Interim Award on Jurisdiction

168.
The Tribunal begins by recalling its decision, in PO N° 1, that it would address three of the Respondent’s jurisdictional objections in a preliminary phase, and join any other objections to jurisdiction or admissibility to the merits.220 The three jurisdictional objections accordingly determined by the Tribunal in its Interim Award dated 18 January 2017 were:

(i) That '[t]he Russian Federation never ratified the ECT and applied the ECT until October 18, 2009 on a provisional basis pursuant to Article 45(1) ECT only "to the extent that such provisional application is not inconsistent with its constitution, laws or regulations’";

(ii) That '[t]he intra-company loans allegedly made by Claimant to Yukos Oil Company are not "investments" within the meaning of Article 1(6) ECT’; and

(iii) That, '[s]ince Claimant is a shell company with no substantial business activities in Luxembourg and is ultimately controlled by nationals of a third State, Respondent is entitled to deny Claimant the advantages of Part III of the ECT pursuant to Article 17 ECT.’221

The Tribunal rejected the first and second of these objections by majority, and the third unanimously.

2. Remaining jurisdictional objections

B. Objection (III): Claimant’s Status as Protected Investor

1. The Respondent’s position

2. The Claimant’s position

3. The Tribunal’s analysis

193.
Ownership and control of the 'Investor'. Article 26 ECT provides for the submission to arbitration of '[d]isputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III...’

C. Objection (V): Article 21 Carve-Out

1. The Respondent’s position

2. The Claimant’s position